I live in Florida and am working for an LLC as a contractor for the first time ever. I travel all over the country speaking at colleges and Universities. I am concerned about the issue of paying estimated taxes. I have been told that the approx taxes on $40,000 are just under $8,000 WITHOUT deductions....I don't know how much I will end up making but I am guessing close to 50,000.....I would like to stick wtih the 40,000 number for now though. Is this statement true and if so, how was it figured?? I have sent estimated payments totaling around 5,000...I am WORRIED about 4/15......
2007-10-25 19:08:48 · 7 answers · asked by william e 2 in Business & Finance ➔ Taxes ➔ United States
1. You are a contractor (that is self employed person), so you can deduct work related expenses from your income. Your income (after deducting expenses) is subject to self-employment taxes at 15.3%. So on an income of 40K it is $6,120. Then you have federal income tax. Your income tax depends upon your filing status, depenedents and deductions. For Single status (without dependents) the tax is $4,296.
2. Employment taxes and federal income tax is collected by IRS. Evidently, on self employment income of $40K, advance tax of $5,000 is not enough. Since difference is more than $1,000 it may mean interest and penalty.
3. Here are the rules for making estimate taxes:
You must pay estimated tax for 2007 if both of the following apply.
1. You expect to owe at least $1,000 in tax for 2007 after subtracting your withholding and credits.
2. You expect your withholding and credits to be less than the smaller of:
*90% of the tax to be shown on your 2007 tax return, or
*100% of the tax shown on your 2006 tax return.
4. So if you pay minimum amount equal to 100% of your 2006 tax return, then you are safe.
5. For 2008 also, divide your taxes for 2007 by four and send quarterly payment equal to that amount.
2007-10-25 20:03:32 · answer #1 · answered by MukatA 6 · 1⤊ 0⤋
I would say that the $8000 is probably pretty accurate. This is because you are self employed. When you pay your taxes on your net income (after deducting your expenses), you will be responsible to pay social security times two. In a normal job, you have a deduction for social security, and then your employer matches that exact amount. When you are self employed, you are responsible to pay both your part as an employee, and your part as your own employer. That is why it is so much. If you were an employee of a company, the deduction would be more like just $4000, but your employer would have also paid another $4000 (behind the scenes on his or her own business tax return). My suggestion - - keep track of all your expenses like travel, hotel, food, anything that is a business expense - - deduct it so that you can lower your gross income. Good luck.
2007-10-25 19:21:44 · answer #2 · answered by Heather J 3 · 1⤊ 0⤋
If you make $40K for the year net, you'd pay about $5650 in self-employment tax (for social security and medicare) plus the income tax which, if you take the standard deduction and don't have any adjustments other than the half of the self-employment tax you're allowed to take off, would be around $3886 if you are single, or $2196 if you are married filing a joint return and your spouse doesn't have income.
2007-10-25 19:22:46 · answer #3 · answered by Judy 7 · 1⤊ 0⤋
If you are unsure overpay the difference and if you are wrong and paid too much...every quarter, and remember NOV-JAN is the last quarter..you will get a refund. Then the next filing year you will have a precise figure for next years return provided the payments to you are on or about the same. Don't sweat April 15th....just put that money in every quarter and you won't get hit with a huge lump sum payment.
2007-10-25 19:18:26 · answer #4 · answered by Anonymous · 1⤊ 0⤋
Yes, I agree with the answer given by Judy and MukatA.
Since you are self employed calcuation of your taxes depends upon number of factors like business expenses, standard deductions and personal exemption.
If we take in account all of above estimated tax of $5000 deposited by you is on very much safer side.
Now you only need a good tax return preparer who can help you more by doing your tax calculations and filing tax return. I know one you can visit their website at http://www.eaccountantz.com or you can call them at 646-688-3146. Any way you can check the number at the website. People at this company are very caring and helpful.
2007-10-25 21:26:11 · answer #5 · answered by Anonymous · 0⤊ 1⤋
Your income tax for amounts between $31,850 - $77,100 would be $4386.25 + 25% of anything over $31,850.
So, in other words, for $40,000, your estimated tax would be $6423.75. For $50,000, your estimated tax would be $8923.75.
2007-10-25 19:19:22 · answer #6 · answered by Anonymous · 0⤊ 3⤋
Use the proper form to figure it out
2007-10-25 19:27:13 · answer #7 · answered by Anonymous · 0⤊ 1⤋